Final Assignment: Where have all the criminals gone?

Chapter four of Freakonomics discusses the possibility that the legalization of abortions led to a reduction in crime rates over time, as a response to John Donahue and Steven Levitt’s article “The Impact of Legalized Abortion on Crime.” This is definitely a unique topic, with the potential to yield very strong implications about society. Freakonomics notes that about twenty-years after the Roe vs. Wade case, “violent crime in the early legalizing states fell 13 percent compared to the other states.” This phenomenon is attributed to the possibility that the legalization of abortion means the cohort of children born after this legalization is missing “the children who stood the greatest chance of becoming criminals.” From an econometrics perspective, this is an interesting question because it involves testing a cause and effect that span almost two decades. So, it brings up the question of correlation or causality.

 

To me, it seems like it is virtually impossible to make a concrete claim about this topic because it is completely hypothetical. It is impossible to say with absolute certainty that the “aborted babies” would have grown up to be criminals. These articles are neglecting to consider the possibility of some of these “aborted babies” to grow up being police officers or even good Samaritans. So, I think it would be beneficial to continue this study and see if this trend has continued in recent years.

It is also interesting to note that “violent crime” can be a loose term. Some would say that the act of performing an abortion is a violent crime in itself, in that prevents the birth of a new individual. This makes the implications of Donahue and Levitt’s study even more controversial. By claiming that abortions result in a reduction of crime rates, are they advocating an increase in the rate and availability of abortions? Or does this relationship reflect, “When the government gives a women the opportunity to make her own decision about abortion, she generally does a good job figuring it out if she is in a position to raise the baby well.” If so, then this study will succeed in helping America transition into an era of more freedom and control for women.

Assignment 9

Chapter seven of Poor Economics discuses micro-lending as a potential solution to solve third world poverty. Micro financing provides struggling families with very small loans to help them jump start new businesses through the purchasing of start up capital like a sewing machine or seeds for a new crop.  Banerjee and Duflo present it as the biggest hope to eradicate poverty. However, there are many inherent issues that come with micro-lending. Specifically, it seems like a main problem comes from the fact that it is difficult to finance these establishments if loans are not repaid.  Introducing politics only further complicates the problem, when potential candidates promise to forgive all debt, and the lending firms are never repaid.

I found the discussion on page175-176 to be particularly interesting. It described how expectations can pre-determine the fate of a lending firm. A similar concept if evident in the “Phillips Curve” relationship, showing how expected price level affects actual price level and output.  In terms of micro-lending, “convincing people that an MFI has no future is the easiest way to make sure that it in fact does not have one” (175). So, it is evident that the success of micro lending in impoverished nations is dependent upon people’s confidence in the organization. If people believe it will succeed, than it will. The business, however, of altering people’s perceptions or expectations can be very challenging. The most effective way to convince people of the effectiveness of MFIs, will presumably be through media endorsements.

After completing the chapter, it was clear that these authors endorse micro financing as an effective approach to address third world poverty, despite its apparent difficulties. However, I am curious to know the plan for the future of these organizations. To me, it seems like micro lending is a temporary solution to poverty. It will help individuals to jump start businesses, and help to increase local economic activity and output per capita. Ideally, as these poor nations become increasingly wealthy, the benefits of micro lending will diminish. It seems logical that eventually, MFIs will become insignificant. I am curious as to whether or not it will be possible for these establishments to grow along with the economies they support, and eventually become banks/saving and loan associations that can finance medium/large businesses. To me, it seems like in order for micro-firms to be viable long term enterprises, they will have to be willing to change/adapt with time.

 

 

 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Assignment 8

http://online.wsj.com/article/SB10001424052702303448404577410070039396092.html

The article, “Mexico’s GDP Exceeds Expectations,” traces the major sources of economic growth in Mexico over the past year, through quarterly analysis of data. Specifically, national statistics indicate that in the first quarter of 2012, GDP grew “4.6% from the first quarter of 2011, with industrial production up 4.5%, services up 5% and agricultural production 6.8% higher.” This increase sits undeniably above the median estimate from 2011 of 4.3%. This steady expansion is credited to “moderate job creation, positive but subdued real wage gains, steady external demand, and solid consumer credit flows.”

            Through my research paper, I plan to investigate various factors on GDP in Central America over the past decade. This article relates to my research, in that it focuses on factors contributing to GDP in one specific Central American nation. So, it is natural to assume that factors affecting the economy in Mexico will affect the economy of neighboring countries (i.e. climate changes, foreign investment, trade, etc.). So, reading this paper helped me to think about my research question, by exemplifying certain factors that strongly affected Mexican GDP. Specifically, the author notes that economic expansion has come to Mexico as a result of increase job creation along with wage increase, and “solid consumer credit flows.” I have recently added variables that proxy for job creation/wage increase/consumer credit flows in my model! Ideally, my final regression will confirm positive GDP growth in Mexico in recent history.

            This article also mentions the possibility of cutting interest rates as a means to stimulate economic growth and increase annual output. This is not something I have controlled for in my model, but will consider doing after reading this article.  This article does not explicitly suggest any alternate sources of data/additional reading. However, it seems worthwhile to try and find similar Wall Street Journal articles for the other countries of Central America, that discuss recent GDP growth in a general sense, to add support to my final thesis.

Assignment 7

Strobl, Eric. “The Economic Growth Impact of Hurricanes: Evidence from US Coastal Counties.” Journal of Development Economics. 97 (16 December 2010). Print.

PDF: http://ll3ep3kc7k.search.serialssolutions.com/?genre=article&isbn=&issn=03043878&title=Journal+of+Development+Economics&volume=97&issue=1&date=20120101&atitle=The+Economic+Growth+Impact+of+Natural+Disasters+in+Developing+Countries%3a+Evidence+from+Hurricane+Strikes+in+the+Central+American+and+Caribbean+Regions&aulast=Strobl%2c+Eric&spage=130&sid=EBSCO:EconLit&pid=

This article investigates the macroeconomic impact of natural disasters in developing countries of Central America and the Caribbean. The research focuses on both a particular region and a particular type of disaster, and employs a “wind field” model to calculate a proxy to be used with a standard growth equation to estimate the impact of hurricanes on economic growth. The results of this research reveal that although monetary losses caused by natural disasters are often large, the loss in output growth for an average hurricane is only about .84 percentage points.

  1.          In terms of my research project, this paper sheds light on some of the inherent problems of investigating the economic damage of hurricanes. Many studies treat natural disasters as “a homogenous group of extreme events affecting an assumed homogenous group of countries.” So, it is important to consider both the scale of each hurricane, and the nature of the region it is impacting. Also, this paper is concerned with economic damage from hurricanes of several Central American and Caribbean regions in the second half of the twentieth century. Because my data is more recent, this study will allow me to compare historical and current trends. However, it is important to note that this study neglects to regress any factors on national GDP besides hurricane damage, and its equation (GROWTHi,t-1Þt = a + b1GDP_CAPi,t-1 + b2WINDi,t+ei,t) is summed over all hurricanes and all regions at time t.
  2.          This paper does not suggest any issues I might have regarding any assumptions of the classical linear regression model. This is mainly because my research investigates monetary damage from hurricanes, while this paper regresses GDP and Wind power (as a destruction proxy) on output growth. So, there are inherent differences in the models and it doesn’t make sense to compare them in a literal sense. However, the paper does confirm the importance of checking the robustness of a model.  It tests the effectiveness of including a WIND variable by creating a dummy variable to indicate whether there “were any landfalls of hurricanes of at least three in the year.” The result was an insignificant coefficient, suggesting that “such a landfall incidence proxy is unlikely to be enough to capture the negative growth impact of hurricanes.” A similar test showed that the shares of “cells” that were directly passed over by hurricane in a given year, is not a valid proxy to investigate hurricane damage. So, it can be proven that variables that seem relevant actually do not affect the dependent variable. This is something to consider, presumably, when testing any model. 

Barbarians at the Gate

Barbarians at the Gate offers a glimpse at the lifestyles and perspectives of the CEO of one of America’s largest corporations. Specifically, the film documents Ross Johnson, CEO of RJR Nabisco, as he looses his job in attempt to buy out for the company RJR Nabisco. Despite offering a higher bid, he looses out to Henry Kravis, a pioneer of leveraged buyouts.  

This film is unique, in that it offers a view from the people at the top, controlling a major company. The economies of scale are enormous, as the characters attempt to outbid each other in multi-million dollar deals. It is interesting that these men are primarily motivated by short term payoffs, and focused on making as much money as possible in the next few years. Ross Johnson runs his company by analyzing and making decisions based off of the overall nominal and stock-market value of RJR Nabisco, but he is not concerned with how the product is made or the welfare of his employees.

From the current day perspective, there seem to be fundamental similarities between the excessive greed and massive deals made during the late 1980s and the housing market crash of 2007. On wall street, are motivated by rising stock values and trying to “make a fast buck.” In bidding wars, opponents become consumed by out bidding their opponent, so that the ultimate selling value far exceeds the actual value of the company. This excessive corporate greed seems to reflect overall economic climate, as price inflation increases with stock values. However, stock prices cannot rise infinitely, and the bubble always burst.

As the executive of RJR Nabisco, Ross Johnson was reportedly given more than 60 million dollars as compensation from the Buyout in 1988. In the automobile industry bailouts on 2008, it was revealed that CEOs of companies such as Nissan and ford accepted compensations upwards of $89 Million dollars. So, it is clear that corporate greed continues to exist in American society, and people at the top make considerably more money than people at the bottom. This unfortunate phenomenon continues to go relatively undetected in periods of economic growth, then revealed in times of recession or panic. Despite regulations, however, people who run these major companies continue to find ways to manipulate the system and maximize their personal payoffs.

Outline

  1. Introduction
    1. I intend to investigate the impact of hurricanes on the economy in Central America.
    2. Relevance

i.     From an economics perspective, this question is interesting because it has potential to reveal the positive or negative affect of this natural disaster of a developing region. This will help in developing a general understanding of major problems in Central American economy, and may inspire solutions that will increase standard of living and growth.

ii.     Additionally, it will be economically interesting to investigate the multiplier effect of hurricane damage, in comparison to the multiplier effect of disaster relief spending. Is there a correlation between foreign aid/ government relief spending and GDP growth rate after major storms?

iii.     To the greater world, this study is relevant in its ability to relate to other areas. Natural disasters occur all over the world, so it may be interesting to compare, for example, economic effect of hurricanes in Central America with the economic effect of floods in India.

iv.     This research was inspired by a particular interest in this region, and an objective to investigate aggregate economy (GDP, CPI, etc), as a function of exogenous variables.

  1. Roadmap

i.      In the next section, I will describe Belasen and Polachek, Stobl, Mark Ruhl, and Alex Julco’s various approaches to this problem. In section two, I will attempt to regress hurricane damage on various factors including GDP, income, and CPI in attempt to see if the effects are the same through various facets of the economy. In the following section, I will use this data to test the hypothesis that economy negatively affected by hurricanes. Finally, I will conclude.

  1. Literature Review
    1. Considering various literary reviews, it is clear that this question remains unanswered despite similar studies that have been conducted.
    2. Arial Belasen and Solomon W. Polachek have determined that, in general, worker earnings in Florida “increase by up to 4%” in counties hit by a hurricane. Overtime, however, affected areas experience faster earning increases but slower employment growth when compared to unaffected counties.
    3. Similarly, Eric Strobl finds that in Us coastal countries, hurricanes cause an initial drop in GDP, followed by a small rise in GDP.
    4. From a more global perspective, Alex Julco questions why it seems that more natural disasters occur in developing regions when compared to developed ones. She concludes that weak adaptive capacities and inadequate infrastructure trigger increasing inequalities as a result of disasters.
    5. Examing government in Central America, Mark Ruhl reports severe corruption as a hindrance of economic growth. According to Ruhl, government corruption in Central America is far worse than in other areas of the world, which has created problems such as income disparity. So, it seems that there is potential for Central America to improve their standard of living and production, but a lack of political follow through.
    6. Considering these publications from a preliminary perspective, it seems that GDp and income are good ways to measure the result of hurricane damage in a given economy. However, it is important to acknowledge that there are other factors impacting the economic climate, such as government corruption.
  2. Modeling
    1. Create a testable hypothesis

i.     Does hurricane damage affect Central American Economy?

ii.     Example evidence: years with a high amount of damage negatively affect aggregate GDP, average income, and CPI.

iii.     I will be using econometric tools, by regressing hurricane damage on GDP, average income, and CPI between the years 2000 and 2011. Specifically, I plan to run a multi variable OLS regression in Stata.

  1. My paper is a theory-based argument, because it tests the hypothesis that hurricanes negatively affect GDP (so cause lower GDP, average income, and CPI).
  2. Data
    1. The ideal data set will reflect whether or not there is a multiplier affect
    2. Specifically, I have compiled data from the World Bank Data bas, revealing economic changes to this region over the time period, and Em-Dat (The international disaster database) which shows annual damage caused by hurricanes in US Dollars.
    3. Ideaslly, I will be able to conduct a separate regression for each nation, and then compare them. However, it may be more efficient to conduct my research by considering changes in the economy of the region as a whole
  3. Evidence
    1. Without conducting any sophisticated findings, the result is unclear at this point. However, considering the data, it does not seem like the economic affect is as significant as one would originally predict.

Bibliography

Belesan, Arial, and Polechek Solomon. ” How Disasters Affect Local Labor Markets: The Effects of Hurricanes in Florida.” Journal of Human Resources. 44.1 (2009): n. page. Web. 5 Oct. 2012.

Ruhl, Mark. ” Political Corruption in Central America: Assessment and Explanation.” Latin American Politics and Society. 53.1 (2011): n. page. Web. 5 Oct. 2012.

Julco, Alex. ” Natural Disasters with Un-natural Effects: Why?.” Journal of Economic Issues. 46.2 (2012): n. page. Web. 5 Oct. 2012.

Strobl, Eric. “The Economic Growth Impact of Hurricanes: Evidence from US Coastal Counties.” IZA. (2008): n. page. Print.

Gondwe Lecture 9/27

Kah Walla is the first woman to ever run for the Presidency of Cameroon, and has been internationally recognized for her strong stance about the positive potential of Africa. Additionally, she has a strong background in management, and created the African consulting firm STRATEGIES in 1997.

In her presentation “Unlocking Africa’s Potential,” she explored the possibility of a bright future in Africa. Currently, Africa produces 12% of all global energy, and recent discoveries have doubled known African gas reserves. In fact, 9% of global oil comes from Africa (compared to 1.5% that can be found in the US). According to Kah Wallah, “the next global growth will come from Africa.” It is seemingly undisputable that Africa holds great potential. 60% of Africans are under 25 years old, and the average working age is 20. So, there is a huge potential workforce for the near future. Comparatively, the average working ages of Asia and Europe are 30 and 40, respectively.

Despite this huge potential, only 2% of global economic output comes out of Africa each year. Simultaneously, 24% of the world’s disease burden has landed in Africa, where 1 out of every 4 people are undernourished. According to Kah Wallah, this phenomenon occurs because “Africa is not poor, it is poorly run.” However, she also argues that Africa is at a crossroads, and has potential to take the world in a new direction. The change must come from within. She argues that the West has a history of exploiting Africa, and they are never going to change. According to her, we as Africans have to figure out our own solution.” And, her plan to change this is to revert back to more traditional African standards of equality, and to better inform the people about political goings on.

From my perspective, everything that Kah Wallah discussed was entirely logical and convincing. However, from an econometrics perspective, the talk leaved a little something to be desired. Specifically, she did not specify how exactly she intended to measure the progress she was discussing. She did not discuss any specific time goals, or successful programs that may have worked in the class. Finally, her talk was based on Africa as a whole continent, but it seems to me that Africa is a continent of many different cultures and backgrounds. I would be interested to learn whether she supports a universal solution for all of Africa, or if each nation should search to find an individual solution.